Edited version of private advice

Authorisation Number: 7910158171730

Date of advice: 23 May 2023

Ruling

Subject: Taxable supplies

Question 1

Where you are providing residential accommodation in residential premises by way of sub-lease, you are making taxable supplies in accordance with section 9-5?

Answer

No. You are not making taxable supplies in accordance with section 9-5. You are making input taxed supplies of residential premises in accordance with section 40-35.

Question 2

Are you required to be registered for GST in accordance with section 23-5, where the annual turnover exceeds the turnover threshold of $75,000?

Answer

No. You are not required to be registered for GST under section 23-5 as input taxed supplies are excluded from the calculation of the GST turnover threshold.

Detailed reasoning

Under section 9-5, an entity makes a taxable supply where the supply:

1.    Is made for consideration; and

2.    Is made in the furtherance of an enterprise being carried on; and

3.    Is connected with the indirect tax zone; and

4.    Is made by a supplier who is registered or required to be registered for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

In this case, the supplies being made are of accommodation, are for consideration and are connected with Australia. You are carrying on a leasing enterprise and you are registered for GST.

None of the GST-provisions in the GST Act operate to make the supply of sub-leasing accommodation of residential premises GST-free. Therefore, we need to determine whether the supply of residential accommodation being provided is an input taxed supply of residential premises.

Residential premises

Subsection 40-35(1) provides that a supply of premises by lease, hire or license is input taxed if the supply is of residential premises (other than a supply of commercial residential premises or accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises).

Subsection 40-35(2) states that the supply is input taxed only to the extent the premises are to be used predominately for residential accommodation (regardless of the term of occupation).

'Residential premises' for GST purposes is defined in section 195-1 as land or a building that:

a)    is occupied as a residence or for residential accommodation, or

b)    is intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation.

(Regardless of the term of the occupation or intended occupation).

Goods and Services Tax Ruling 2012/5 Goods and services tax: residential premises (GSTR 2012/5) addresses residential premises. Paragraphs 6, 7, 9, 10 and 15 of GSTR 2012/5 state:

6. Premises, comprising land or a building, are residential premises under paragraph (a) of the definition of residential premises in section 195-1 where the premises are occupied as a residence or for residential accommodation, regardless of the term of occupation. The actual use of the premises as a residence or for residential accommodation is relevant to satisfying this limb of the definition.

7. Premises, comprising land or a building, are also residential premises under paragraph (b) of the definition of residential premises if the premises are intended to be occupied, and are capable of being occupied, as a residence or for residential accommodation, regardless of the term of the intended occupation. This limb of the definition refers to premises that are designed, built or modified so as to be suitable to be occupied, and capable of being occupied, as a residence or for residential accommodation. This is demonstrated through the physical characteristics of the premises.

9. The requirement in sections 40-35, 40-65 and 40-70 that premises be 'residential premises to be used predominantly for residential accommodation (regardless of the term of occupation)' is to be interpreted as a single test that looks to the physical characteristics of the property to determine the premises' suitability and capability for residential accommodation.

10. The requirement for residential premises to be used predominantly for residential accommodation does not require an examination of the subjective intention of, or use by, any particular person. Premises that display physical characteristics evidencing their suitability and capability to provide residential accommodation are residential premises even if they are used for a purpose other than to provide residential accommodation (for example, where the premises are used as a business office).

15. To satisfy the definition of residential premises, premises must provide shelter and basic living facilities. Premises that do not have the physical characteristics to provide these are not residential premises to be used predominantly for residential accommodation.

Further to this, paragraph 77 of GSTR 2012/5 states:

The premises may be in any number of forms, including detached buildings, semi-detached buildings, strata title apartments, single rooms or suites of rooms within larger premises. Premises that lack the features of shelter and basic living facilities are not residential premises.

In this case, the properties you are sub-leasing are either single rooms or whole properties which are self-contained and are rented out for overnight stays. These properties satisfy the definition of residential.

In this case, the properties you are sub-leasing are either single rooms or whole properties which are self-contained and are rented out for overnight stays. These properties satisfy the definition of residential premises as they provide shelter and basic living facilities such as bedrooms, bathrooms and toilet facilities.

Commercial Residential Premises

Under section 195-1, the term 'commercial residential premises'means:

(a)  a hotel, motel, inn, hostel or boarding house; or

...

(f) anything similar to residential premises described in paragraphs (a) to (e).

However, it does not include premises to the extent that they are used to provide accommodation to students in connection with an education institution that is not a school.

Goods and Services Tax Ruling GSTR 2012/6, Goods and services tax: commercial residential premises (GSTR 2012/6) provides the Commissioner's view on the characteristics of commercial residential premises.

The terms hotel, motel, inn, hostel and boarding house are not defined in the GST Act and take their ordinary meaning. GSTR 2012/6 lists the ordinary meanings of the terms from a number of dictionaries in interpreting paragraph (a) of the definition. The following meanings are sourced from Macquarie Dictionary 7^th edition:

Hotel - a building in which accommodation and food, and alcoholic drinks are available.

Motel - a roadside hotel which provides accommodation for travellers in self-contained, serviced units, with parking for their vehicles.

Inn - a small hotel that provides lodging, food etc., for travellers and others.

Hostel - a supervised place of accommodation, usually supplying board and lodging provided at a comparatively low cost, as one for students, nurses, etc.

Boarding house - a dwelling in which lodging is provided to paying residents who share common facilities such as a kitchen, laundry, living room, etc.

Paragraphs 10 and 11 of GSTR 2012/6 explain that the objective factors relevant to characterising premises under paragraph (a) or (f) of the definition include the overall physical character of the premises and how the premises are operated. The test to apply for paragraph (a) of the definition is whether the premises are a hotel, motel, inn, hostel or boarding house and the test for applying paragraph (f) is whether the premises are similar to these, in the sense that they have sufficient likeness or resemblance to any of those types of establishments.

Paragraph 12 of GSTR 2012/6 lists the characteristics that are considered to be common to operating hotels, motels, inns, hostels and boarding houses that are relevant, though not determinative, to characterising premises as commercial residential premises:

• commercial intention,
• multiple occupancy,
• holding out to the public,
• accommodation is the main purpose,
• central management,
• management offers accommodation in its own right,
• provision of, or arrangement for, services, and
• occupants have status as guests.

GSTR 2012/6 at paragraph 193 notes that there is a relationship between residential premises and some commercial residential premises in the GST Act. In some cases, there may be an overlap in that some premises which fit within the definition of residential premises also fit within the definition of commercial residential premises.

Further, GSTR 2012/6 states:

95. In addition to living accommodation areas, premises that are commercial residential premises include commercial infrastructure to support the commercial operation of the premises. This infrastructure may include (but is not limited to) reception areas, dining and bar areas, meeting/function areas, kitchens, laundry facilities, storage areas and car parks. This infrastructure is used to provide services to occupants. Premises described in paragraph (a) and similar premises under paragraph (f) of the definition contain some or all of these areas to some degree.

201. A supply by sale or lease of real property consisting of part of a building cannot be characterised by reference to another supply. For example, a hotel may be strata titled so that each hotel room and the commercial infrastructure are separate strata units. Where the strata units are individually supplied under multiple sale contracts or leases, each individual supply of a strata unit must be characterised without reference to other supplies of strata units...

230. A single strata titled hotel room cannot, by itself, exhibit the characteristics of commercial residential premises. A supply by way of sale or lease of a number of hotel rooms, without the commercial infrastructure to support the operation of the premises as commercial residential premises, is an input taxed supply of residential premises.

In your case you are suppling rental accommodation in the properties that do not provide services such as a restaurant, room service and on-site reception. The sub-lessees are responsible for their own cooking and laundry. However, you do provide a cleaning service only after the guests check out of the property. Accordingly, we consider your supplies of accommodation in the properties are not supplies of accommodation in commercial residential premises.

Given the above, your supply of accommodation at premises will be an input taxed supply of residential premises pursuant to section 40-35.

GST registration

Section 23-5 provides that you are required to be registered under this Act if:

• you are carrying on an enterprise, and
• your annual turnover meets the registration turnover threshold.

Subsection 23-15(1) provides that your registration turnover threshold (other than a non-profit body) is $75,000.

Subsection 188-10(1) provides that you have a GST turnover that meets a particular turnover threshold if:

• your current GST turnover is at or above the turnover threshold, and the Commissioner is not satisfied that your projected GST turnover is below the turnover threshold; or
• your projected GST turnover is at or above the turnover threshold.

Your current GST turnover is the value of all the supplies made by you during the current month and previous eleven months. Projected GST turnover is the value of all the supplies made or likely to be made by you in the current month and the next eleven months.

Subsection 188-15(1) states that your current turnover at a time during a particular month is the sum of the values of all the supplies that you have made, or are likely to make, during the 12 months ending at the end of that month, other than:

a)    Supplies that are input taxed; or

b)    Supplies that are not for consideration (and are not taxable supplies under section 72-5); or

c)    Supplies that are not made in connection with an enterprise that you carry on.

It has been established that you are making input taxed supplies of residential accommodation and are carrying on a leasing enterprise. Therefore, you meet the requirement in subsection 23-10(1).

In this case, your turnover consists of income taxed supplies of residential accommodation which represents 100% of the total income generated by you. As a result, you are not required to be registered for GST.